Egg-free cake business Cake Box (CBOX:AIM) delivered a 14% jump in pre-tax profit and earnings in its first set of full year results to 31 March 2019.
The £3.8m profit and 7.9p of earnings per share were bang in line with market expectations but the pace of progress has been impressive.
In 10 years the franchise business has opened 113 outlets with average annual franchise growth of 36% since 2014. Another 27 new franchised stores flung open their doors for business in the year under review and Cake Box is targeting 24 further openings this year.
Such rapid has seen the company recognised in the Sunday Times Virgin 100 fastest growing UK companies league table. It is worth noting the company's eggs-free/vegan angle emerged long before the current fad for everything vegan.
Shares in Cake Box rose 3% to 171.5p on Monday, yet the stock is close on 60% up on its 108p initial public offering (IPO) price of almost exactly a year ago.
FRANCHISE MODEL DRIVES GROWTH
The reason Cake Box has been able to grow so fast and so profitably is that franchisees fork out the circa £125,000 capital to open a shop and then subsequently own and run the store.
The company receives over 75 applications from eager would-be franchisees every month. Cake Box provides the egg-free cakes, marketing and head office IT systems, plus on-line support.
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Roughly 80% of the company’s revenues are derived from supplying the sponges and creams to franchisees, while the rest are fees for providing the store fit-out, franchise fees and equipment. Cake Box also takes 5% of on-line revenues.
MORE TO COME
Like-for-like trends continued to be a positive, up 6.5% for the whole year and 8.6% in the second half. The company achieved a circa 2.8% increase in gross margin to 45.7%, aided by more efficient ovens and an improved sponge yield. The company is also getting better purchasing power as it grows and purchases more raw materials.
The dividend was increased by 50% to 2.4p, equating to 3.6p for the full year, which is covered twice over by earnings, suggesting that there is a decent income element attached to this growth story.
House broker Shore Capital continues to flag the company's capital light model and cash generation. It estimates an attractive free cash flow yield of 7.1% for 2021.
